Deflation warning after February spending high

Though the CBI commented that retail sales had flat lined in February, The Office for National Statistics (ONS) has confirmed that UK sales growth increased overall by 5.7% compared with February 2014. This provided the UK with its 23rd consecutive month of year on year growth.

The study was based on Retail Sales for February 2015 and calculates the amount spent from 1 February to 28 February by surveying 5,000 retailers. It presents estimates of the quantity bought and amount spent in the retail industry.

The report found that all sectors showed development and that the amount spent in the retail industry increased by a comfortable 2.2% compared to February 2014, a 0.3% increase from January.

Internet transactions provided interesting results. Online sales increased in volume by 10.1%, above February 2014, while the value of online transactions fell by 2.3% in comparison to January 2015, as the Black Friday and Christmas shopping bonanza died down. The amount spent accounted for 11.6%, with the decline suggesting that people are applying the British ‘bargain buy‘ mentality to online platforms.

Average weekly online spend was £756.8m in February 2015, with household goods in particular fairing well, something put down to the British housing market‘s improvement. The sector increased by a staggering 53.5%, suggesting growing confidence in basic human needs.

ONS reported that for every pound spent in the retail industry 42p was spent in food stores, as customers profited from the battle of the ‘big four‘ supermarkets and their daily price cuts.

However, eCapital Economics said that retailers must be wary of deflation pressures on the high street. The retail sales deflator fell 3.6% in February, the lowest price since 1997 and the food sector is having deflationary difficulties. This is put down to the “intense competition between supermarkets”.

Though different sectors are experiencing various trials, the overall retail industry is clearly on a profitable high. Zero inflation, consumer confidence and low unemployment is boosting consumer spending power. Though retailers such as grocers will have to tread cautiously to ensure that they are ready to compensate and adjust prices according to possible UK deflation.